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VOLUME -22 NUMBER 5
Publication Date: 05/1/2007
May 2007 Issue
Special Feature: Components & Disty
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Supply-Chain Management in the EC Marketplace
The printed circuit board is at the heart of all electronic supply chains and dictates the needs of the system..
By Carol Williams, Founder and President, Trendsetter Electronics, Inc., Round Rock, TX
The electronics component industry has made great strides since its humble beginnings in the 1950s, when inventory was limited to surplus radio parts. While the basic entrepreneurial spirit within the industry remains the same, much has changed in the past sixty years. Today's EC marketplace is a global network of suppliers, manufacturers and distributors working in a hyper-competitive, high- tech environment where every second counts. And the pace of change is accelerating. Every link in the supply chain is under mounting pressure to deliver greater value with expanded services at a lower cost. All of this is happening in an era of rising fuel costs, heightened security regulations, shrinking product life cycles, complex trademark and intellectual property issues, and, oh, by the way — next month, please do it all faster.
There doesn't seem to be an end in sight. Nor is there an end to the line of new players charging onto the field, eager to get into the game. All of which begs the following questions: Is there a limit to what the EC supply chain can tolerate? Can it break? What is required to survive and profit in this hyper-competitive worldwide business environment? What does the future hold? The supply-chain squeeze is on, and suppliers, OEMs and distributors are all feeling the pressure.
There's plenty of blame to go around. OEMs have traditionally leaned heavily on their distributors and suppliers, enlisting their support in keeping prices low. However, some of the arrangements common in today's marketplace border on the insane. Sub-single-digit profit margins? Unthinkable, right? Think again. These absurd conditions are the new "normal" for many suppliers and distributors today. Part of what keeps many of these "take-it-or-leave-it" relationships together, of course, is the pervasive and chronic fear of obsolescence or of being replaced. A very real fear, indeed. It must be pointed out that many good changes in the supply-chain have resulted from the Big Squeeze. Greater overall efficiency, an environment of continual innovation, more accurate strategic planning and a proliferation of non-traditional business alliance/partnership models are prime examples. But there have been devastating downsides, too. For example, in today's turbocharged economy, strategic planning has assumed an all-important status. How well a company predicts future trends often spells the difference between success and disaster. However, it's easy to forget that strategic planning, a mainstay of prudent and conservative business leaders, is a cloudy crystal ball at best. When relied upon too heavily, the results can be as tragic as Las Vegas tourists betting their homes on a single roll of the dice.
Telecom Industry Imploded
One need only recall when, in the late months of 2001, the telecom industry virtually imploded. A contributing cause of the meltdown was heavy financial investments and material deployments that were based on what proved to be wildly optimistic market predictions. The economy, as it happened, moved down, not up. The entire market felt the tremors as they jolted the supply chain from one end to the other. It took years to recover from that painful miscalculation. Failing to accurately predict and adapt to an economic downturn in today's high-stakes industry can be catastrophic. Incorrectly forecasting an upturn can be equally damaging. When that miscalculation occurs, extraordinary friction is created up and down the supply chain. How many ways are there to say, "Sorry, that's not in stock" to very, very unhappy customers? Simply put, it's becoming harder and harder to find a profitable middle ground between the inhospitable extremes. Does it even exist any more?
Distributors are bearing more and more of the OEM's production costs, but it's no secret who is really to blame for the Big Squeeze: the end user. Today's electronic component market is customer-centered, and buyers know it. They are finicky and demanding and expect the right products to be available at convenient times and locations. Also, they have developed (or, more accurately, they've been allowed to develop) the expectation that prices should do nothing but fall — forever! Take this unrealistic attitude to its logical conclusion, of course, and manufacturers and distributors will soon be paying their customers to take all those pesky electronic parts and end products off their hands.
Finding the Middle Ground
The good news is that forward-thinking, innovative distributors can carve out a lucrative middle ground for themselves, despite the pressures from both ends of the supply chain. As the market consolidates and big firms keep getting bigger, opportunities are created for smaller distributors to capitalize on their unique competitive advantages. The much-touted global economy, for example, is not monolithic; it's a multi-faceted patchwork quilt consisting of hundreds of discrete local markets. And, as the world's mega- corporations are finding out, big does not always equal better when it comes to servicing those markets. As today's supply chain becomes increasingly more segmented, smaller, more nimble EC distributors are finding plentiful opportunities for them to offer specialized, and mutually beneficial value-added services.
Testing is at the heart of any successful supply chain operation.
The supply chain is no longer a strictly linear process moving in a straight line from source to retail shelf. It's increasingly segmented, specialized and cyclical. Information and innovation flow and loop back in multiple directions. A perfect example is the increasing influence customers now have on every aspect of product development, from inception to delivery. Distributors, of necessity, must change to meet these new conditions.
Distributors unwilling to move beyond the established roles of order fulfillment and logistics/material management support will find it increasingly difficult to remain viable concerns. Many of their traditional services are now available to customers in the form of sophisticated, internet-based search technology. It's easy to understand why customers for whom price is the only object are attracted to these new options for supply-chain management. As the Big Squeeze, continues, one can't help wondering: how long can this go on? Is the end near? Yes, it is the end — of the
. The future is actually very bright for companies willing to try something completely different.
The old paradigm, in which competing members of a supply-chain single-mindedly elbowed their way to the best possible deal for their customers, is falling by the wayside. What's replacing it? Strategic collaboration. It makes sense to suppliers, many of whom are discovering that they lack the depth of resources required to produce the varied and complex products demanded by customers. And they're turning to distributors for help in certain areas, which traditionally had belonged to manufacturers alone:
Distributor managed inventory.
Customer strategic technology expertise.
Distributors, because of their unique place in the supply chain, are the logical hub for coordinating and/or providing these services. And that's precisely what they are doing. The term "component distributor" has become a very incomplete label. Most "best- practice" distributors are information managers and strategic business partners first; order fulfillment is simply one part of that larger whole.
Expedited and on-time shipping is a must to keep the supply chain operating effectively.
Collaboration on this level requires the recognition of shared goals and a mutual understanding between its partners. The relationship's central focus is based on a deep understanding of customers at every level of the supply chain and giving them what they need to be successful. In a strictly practical sense, distributors in a collaborative strategic partnership still manage specific segments of the supply chain, but their interest goes far beyond that. Success requires each partner to treat their customers' customers as if they were their very own. Because, in a real sense, they are.
One Size Does Not Fit All
There is no single template for the structure or life span of these strategic alliances. They generally originate when a distributor notices an opportunity and proactively suggests constructing a cooperative alliance in order to bridge gaps across the supply chain.Today's electronic component industry is a volatile blend of globalization, shorter product life cycles, mergers, acquisitions, rising consumer expectations, and intense competition from dot.com companies. Many of the old "rules" for the supply chain are being rewritten or tossed out the window altogether, and changes are coming faster each day. Companies need to think globally while remaining focused on their unique, local business environments of their customers. They need to embrace emerging technologies and innovative, new partnering strategies or fall by the wayside. But some things haven't changed. As paradoxical as it may seem, successful EC companies, at their core, still follow the basic template established by the industry's early pioneers: finding a need in the marketplace and filling it with outstanding product lines and peerless customer service.
For more information, contact: Trendsetter Electronics, Inc., 1910 Sam Bass Rd., Round Rock, TX 78681.
800-310-3050 or 512-310-8858 fax: 800-681-5010 or 512-310-8892 email@example.com Web:
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